Walmart's Asda is merging with UK supermarket chain Sainsbury's

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Asda, which was previously owned entirely by Walmart, is merging with another UK supermarket chain, Sainsbury's, according to TechCrunch.

BI Intelligence

Walmart will hold a 42% share in the combined company, and will receive £2.975 billion ($4.1 billion) in cash, giving Asda a valuation of £7.3 billion ($10 billion). The US retailer will also take a noncash loss of approximately $2 billion. The combined company will maintain both the Asda and Sainsbury's brands and operate over 2,800 stores.

The new company will have the leading market share in Britain's grocery industry.Prior to the merger, Sainsbury's and Asda were neck and neck for second in the market, with 15.8% and 15.6% share, respectively, according to Kantar. But their combined share of 31.4% will overtake market leader Tesco's 27.6%, putting the new company in a great position to succeed.

The deal will have to contend with antitrust regulation, but that may not be too big of a hurdle since Sainsbury's is reportedly more prominent in southern England and Asda has more stores in the north, according to CNN Money. Despite Walmart's shrinking control of the business, the plan is for it to be a "strategic partner and long-term shareholder," though its level of involvement remains to be seen.

Here are a few factors that may have motivated the deal:

Walmart and Sainsbury's might be banding together to combat discounters like Aldi and Lidl.Aldi's and Lidl's market shares have grown considerably since the beginning of 2016, according to Kantar, at the expense of retailers like Sainsbury's and Asda. They've done this largely through their cheap prices, and Walmart and Sainsbury's may be hoping they can better match their prices if they pool their resources.

The two companies could be worried about Amazon's always-looming shadow. Whole Foods has seven locations in the UK, all in London; has previously partnered with UK supermarket chain Morrisons to deliver its products through Prime Now and Amazon Pantry; and is rumored to be interested in acquiring Ocado, a UK online-only grocer with significant automation capabilities, according to TechCrunch. Walmart and Sainsbury's may be trying to position themselves to compete with Amazon in the event that it makes a bigger push into the market.

Walmart may be reevaluating its international business plans. In addition to taking a step back in the UK, Walmart is looking to sell a significant portion of its business in Brazil, and is reportedly on the verge of purchasing a majority stake in Flipkart in India. Its true international strategy is unclear, but Walmart may be looking to focus its foreign investments on high-potential markets like India, or possibly just India, going forward.